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Friday, March 27, 2015

Marx's project: Introduction and commodities

I think that to understand Marx, it is necessary to understand what his project was. I'm writing quickly, so I'm not going to cite, and this is my personal interpretation of my (rather limited) reading of Marx. As I mention below, all theories are false, but some are useful; I'm describing here why I think Marx's theories about capitalism are useful. I am not a truth relativist; I'm saying only that our theories about the world are always limited and approximate.

Marx starts with two observations: first, by the middle of the 19th century, capitalism had increased the forces of human production by at least a couple of orders of magnitude relative to feudalism; second, most people in industrialized economies were living in abject misery, far worse than under feudalism. Why? Smith (and perhaps Ricardo) were convinced that greater economic activity would lead to increased happiness for everyone, including the working class. By the mid 1800's, almost a century after Smith published The Wealth of Nations in 1776, the condition of the working class had actually declined. Why?

Marx rejected the hypothesis that the rulers of capitalist society are just especially bad people. Indeed, although Marx's seething rage at the suffering of the workers is apparent, in his economic writing, Marx rarely (if ever) employs a moral critique of anyone or anything, even capitalism. (Marx did not exhibit the same reserve in his personal relationships.) Marx was enraged, to be sure, but he knows that the fact that he is enraged is of no value; he wants to understand why he's enraged, and what precisely he's enraged about. Even before writing Capital, Marx was already convinced that not individual "evil" capitalists, but rather the fundamental structure of capitalism was responsible for human misery. Thus, Unlike his predecessors and other economists, Marx was completely uninterested in a descriptive, positivist account of how capitalism works. Instead, Marx's analysis of capitalism was geared towards locating precisely what it is about the structural relations of capitalism that causes the misery of the working class.

Marx was a theoretician, not a scientist, and he was trying to solve a problem, not simply describe the world as it is. It is important to understand that, like every scientific theory, Marx's theory is a model. All models, scientific and economic, cut away, i.e. abstract, important parts of reality. In much the same sense, theories of gravity abstract away things like air resistance. Looking only at gravity will not explain why aircraft fly, but to make an aircraft fly, we still have to understand gravity on its own terms. Because all models abstract away important parts of reality, all models are wrong; some models, however, are useful. Because a theory of gravity, neglecting air resistance, is useful for making aircraft fly, we continue to use it, in addition, of course, to theories of aerodynamics.

So, Marx begins Capital with a theoretical analysis of the commodity. Marx defines a commodity as:

A physical object that

by virtue of its physical properties has some use-value (i.e. its consumption satisfies some human want),

can and must be created using directed, willful human effort (i.e. labor), and

is created for the purpose of exchanging it for other commodities.

If something does not fulfill any of the above conditions, Marx is no more interested in it than he is in the speed of light or aesthetic appeal of the Mona Lisa. (Not that such things aren't interesting — they are interesting — but they're not part of Marx's project. Marx also tacitly assumes (at first; later in Capital he makes the assumption explicit), that people are actually exchanging commodities in free, uncoerced competition with each other. So, if someone creates something without use-value, it is not a commodity, no matter how much directed, willful human effort went into it. If something has use-value, but is not created by human labor, it is not a commodity. If someone uses human labor to create something they themselves will consume, it is not a commodity. (Marx focuses on the "goods" part of "goods and services", but the argument for services is virtually identical.) Marx then asks the question: what determines the quantity of one commodity that will exchange for some quantity of another commodity?

Using this definition, Marx comes to the surprising conclusion: the exchange-value of commodities, i.e. the quantity of a commodity that will be freely exchanged for a quantity of another commodity, depends only on the total quantity of socially necessary abstract labor time (SNLT) used to create the commodity. Marx first argues that for a free exchange to take place, there must be something equivalent in the commodities exchanged. If there were nothing at all equivalent, then exchanges would be arbitrary and highly variable: one person would exchange a coat for ten pairs of shoes, others would exchange ten coats for one pair of shoes, and everywhere in between. But, given competition, even if someone really wanted a coat, and had more shoes than he knew what to do with, if one person with a coat will take two pairs of shoes and another demands ten pairs, he will still buy from the cheaper seller, and vice-versa. There are some price variations, but I don't see a gallon of gas selling for \$0.10 at one station and \$10.00 at another.

Marx rejects the idea that use-value has anything to do with exchange-value. Marx argues that use-values are incommensurable. We cannot quantitatively compare the use-value of keeping one's body dry with the use-value of a good meal. No one, Marx argues, would exchange comparable use-values, i.e. exchange a coat for a coat. Since use-values are incommensurable, they cannot be equal. And this position makes sense, even if we could numerically compare use-value. I need a certain amount of food every day to survive — a hamburger has infinite use-value to me — but I don't sell myself into slavery for a meal. Similarly, my local restaurant has more hamburgers than the owners could possibly eat — they have zero use-value to the owners — but they don't just give them to me for free. Furthermore, my computer is far more useful to me than my car (if you forced me to choose, I would give my car without hesitation), but I paid twenty times more for my car than for my computer. The whole point of trade is that both parties gain more use-value than they give up; there can be nothing directly equivalent about a positive-sum game.

Marx argues that what can be, and is, equal about two commodities is the socially necessary abstract labor time used to create them. If, counting all the labor time, including the labor time necessary to create the physical capital, it takes one hour of labor time to create a pair of shoes and two hours to create a coat, then two pairs of shoes will have the same exchange-value as a coat; in a money economy, then a coat will have double the money price of a pair of shoes. Again, this makes sense: if I someone is selling a coat for three times the price of a pair of shoes, then I will just work and create the coat myself, giving up the time I could use to create only two pairs of shoes. More precisely, if a company can make identical coats for two-thirds the price their competitors charge, they will do so, and sell all the coats they make.

The qualifiers "socially necessary" and "abstract" are important. "Socially necessary" means that inefficient producers relative to the technical and social state of production do not get to charge more for their commodities than efficient producers. "Abstract" means that the details of precisely how some commodity is produced is irrelevant; what matters is only the actual time (and perhaps other factors, such as intensity and agreeableness/disagreeableness of the labor) involved.

Again, I will reiterate: the Labor Theory of (Exchange-)Value is a model. Marx does not argue that if you go out and measure the money price and socially necessary abstract labor time of every product on the market, you will get a nice neat regression line with only random errors. In much the same sense, if you drop a hammer and a feather, the hammer will hit the ground well before the feather. But Marx does say that if there really is free competition, and if labor really can create more of a commodity, then yes, there will be a direct correlation between the prices and socially necessary abstract labor time. Similarly, if there is a substantial discrepancy between prices and socially necessary abstract labor time, then there will be a violation of the assumption of free competition.

2 comments:

(1) "So, if someone creates something without use-value, it is not a commodity, no matter how much directed, willful human effort went into it. "

And more than that: if someone creates something without subjective utility to anyone when this is a necessary condition for it to have value in any sense, no amount of labour confers value on it.

This is already a devastating problem for the classical labour theory of value: labour is not even a sufficient condition for economic value (in any sense) or exchange value at all. There are other necessary conditions. That badly undermines the whole theory.

(2) "If, counting all the labor time, including the labor time necessary to create the physical capital, it takes one hour of labor time to create a pair of shoes and two hours to create a coat, then two pairs of shoes will have the same exchange-value as a coat;"

I don't think you properly understand abstract SNLT. It is much more than just crude measurement of labour hours.

Instead, it is a highly abstract “average unit” of the “average degree of skill and intensity of labour”. But there are severe problems with this. How do you take an average of a heterogeneous factor like labour, when there is so much difference in profession, skill, competence, experience, and skills to be “averaged”?

(3) "But Marx does say that if there really is free competition, and if labor really can create more of a commodity, then yes, there will be a direct correlation between the prices and socially necessary abstract labor time"

But there isn't, for the simple reasons (1) it is unclear how to properly define SNLT anyway and (2) even when they do give some definition no Marxist has ever been able to explain coherently how a SNLT maps onto a market price.

This is unsolvable transformation problem.

A minor point:

(4) "second, most people in industrialized economies were living in abject misery, far worse than under feudalism. "

Just on a purely historical point, how do we know this is true?

In fact, I would say that opposite was the case: most people were living better lives under 19th century capitalism, not only in terms of material wealth but also in terms of other living standards. There is a whole historical literature backing this view up too.

This is already a devastating problem for the classical labour theory of value: labour is not even a sufficient condition for economic value (in any sense) or exchange value at all. There are other necessary conditions. That badly undermines the whole theory.

Why? If an object has sufficient use-value, then its exchange value is the total amount of SNLT embedded in it. If not, it will not be exchanged.

I don't think you properly understand abstract SNLT. It is much more than just crude measurement of labour hours.

I think I understand abstract SNLT. It is more than just a crude measurement, but not much more.

Instead, it is a highly abstract “average unit” of the “average degree of skill and intensity of labour”. But there are severe problems with this. How do you take an average of a heterogeneous factor like labour, when there is so much difference in profession, skill, competence, experience, and skills to be “averaged”?

Conceptually, it doesn't seem that hard. And, as I said earlier, a crude measurement just of time will get us a good approximation. In the aggregate, it's easy to measure ASNLT: take all the production, and divide by the hours worked (in a competitive market), assume that profession, skill, competence, and experience are more-or-less normally distributed, and you have a concrete measurement of average SNLT.

even when they do give some definition no Marxist has ever been able to explain coherently how a SNLT maps onto a market price.

You've had several explanations here and on the blog: Price = marginal total labor time * average wage.

This is unsolvable transformation problem.

The transformation problem, which is a real problem, concerns variation in prices due only to variations in organic composition of capital.

Just on a purely historical point, how do we know this is true?

I don't want to argue the point here; perhaps another time; since I follow your blog more or less religiously, if you post an argument there I will almost certainly read it and perhaps comment. In any case, Marx himself definitely believed that the working class of the industrial capitalist nations lived in unconscionable misery.

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